Improving Your Credit Score: Pay Off Debt

Introduction

Credit scores are determined by the credit reporting agencies. There are several factors that are used to determine your overall credit score or FICO score. One of these factors is the amount of debt that you currently have. Based on the amount of debt that you currently have and your income to debt ratios along with other factors, credit-reporting agencies will assign a credit rating that ranges between 450 and 750.

How Your Credit Score Changes

Credit reporting agencies will change your credit score when information changes. For example, should you pay off a credit card debt and that debt now shows a zero balance, it is likely that your credit score would go higher since your risk of defaulting on paying your debts has been reduced.

A Major Factor in Determining Your Credit Score

A major factor in determining a FICO score is look the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be. Actually, this factor is one of the largest determiners of a FICO score and accounts for about 30% of your overall score.

How the FICO Credit Score is Calculated

Since each credit-reporting agency calculates your score, the FICO score with each agency may vary. Each agencies score is different because the credit history that each agency has about you may be different. Many lenders will make a credit card or other type of loan based on a single agency’s credit score while others such as mortgage companies always will take into consideration all three credit bureaus information since this is a much more accurate reading verses counting on just one resource for information.

The Importance of Paying Off Your Debts

Keeping this in mind when you pay off your debts so that you can raise your score, you will also want to get copies of each of the top three credit reporting agencies reports on your credit to ensure that your accounts that are paid in full reflect that on your report. This can be done by contacting the agencies and requesting a copy of the report and then reviewing it thoroughly. Once this has been done, you will want to notify the credit reporting agency of any discrepancies that you find and they will then contact the lenders to make sure the account is paid in full and change your report.

Summary and Conclusion

By keeping these pointers and factors in mind, you will be able to take a number of steps that will have a very positive effect on your credit history and your credit score. You will be able to take steps that will improve the overall outlook of your financial life today and well into the future.